séance 1

Question 1

what is the definition of trade?

Answer 1

Trade is a voluntary act between two parties, each giving something to the other in exchange for something else in return

Question 2

T or F: parties involved in a trade are always better off after the trade than before

Answer 2

yes because they have both agreed to it

Question 3

what does utility represents?

Answer 3

Represents the satisfaction an individual derives from an activity – measure how better off (related to satisfaction)

Question 4

what are the advantages of the notion of utility?

Answer 4

• takes the context into account (rich vs poor)

- considers things other than just money

Question 5

what are the drawbacks of the notion of utility?

Answer 5

• difficult/impossible to measure

- subjective

Question 6

what is the definition of buyer valuation (V)?

Answer 6

largest amount the buyer is willing to pay to obtain a given object

Question 7

what is the alternative terminology of buyer’s valuation?

Answer 7

willingness to pay

Question 8

what is the advantage of valuation?

Answer 8

it is measurable: it is monetary and measurable representation of utility

Question 9

TF: valuation is an absolute notion

Answer 9

F: it is not an absolute notion: it is subjective and different for everyone

Question 10

what is the definition of seller’s valuation? (C)

Answer 10

smallest amount the seller will accept to get rid of the object

Question 11

what is seller’s valuation related to ?

Answer 11

it is related to the cost to the seller (cost of obtaining the object, opportunity cost, etc)

Question 12

what is the alternative terminology of seller’s valuation?

Answer 12

willingness to accept or reservation price

Question 13

what is the free trade condition?

Answer 13

C =< P =< V

Question 14

TF: if P

Answer 14

F: the buyer refuses to buy if P>V

Question 15

TF: if P

Answer 15

V

Question 16

what can we say about the individuals concerned in a free trade?

Answer 16

neither agent can be forced to take part in the trade

Question 17

what are the gains from trade of the buyer? (surplus)

Answer 17

V-P

Question 18

what are the gains from trade of the seller? (surplus)

Answer 18

P-C

Question 19

what are the total gains from trade equal to?

Answer 19

V-C

Question 20

TF: total gains from trade are dependant of P

Answer 20

F: total gains from trade are independent from the price

Question 21

TF: the more 2 ppl differ from their valuation of a good, the more gains are made from the trade

Answer 21

T

Question 22

what is the definition a buyer’s total valuation? V(q)

Answer 22

it is the willingness to pay to obtain q units of the good

Question 23

what is the definition of a buyer’s marginal valuation? MV(q)

Answer 23

it is the willingness to pay to obtain one extra unit of the good (valuation of an additional unit)

Question 24

how to compute MV(q)?

Answer 24

MV(q) = V(q) - V(q-1)

Question 25

a buyer will buy units of a good as long as...

Answer 25

MV(q) > P

Question 26

we say that to know how many units are traded, we need to compare MV and P. what is called that kind of reasoning?

Answer 26

thinking at the margin

Question 27

what does the surface sous la courbe of MV represents?

Answer 27

it represents the valuatin

Question 28

what is the definition of seller's marginal cost? (MC)

Answer 28

it is the willingness to accept in exchange of q units of the good: minimum amount necessary for the seller to sell one more unit of the good

Question 29

how to compute MC?

Answer 29

MC(q) = C(q) - C(q-1)

Question 30

a buyer will sell units of a good as long as...

Answer 30

MC(q) < P

Question 31

TF: as a seller, you want to maximize the nb of items sold

Answer 31

F: you want to maximize profit, not the nb of items sold

Question 32

TF: thinking at the margin always gives the result of a maximized profit (surplus)

Answer 32

yes

Question 33

how can we compute total gains from trade from the graph?

Answer 33

aire sous la courbe entre MV(q) et MC(q)

Question 34

what is the definition of an efficient situation (pareto)?

Answer 34

a situation is efficient if it is impossible to make someone better off without making someone else worse off

Question 35

what can we say about surplus at the efficient, optimal amount of goods traded?

Answer 35

profit (surplus) is maximized

Question 36

when the situation is efficient, the point of maximal surplus is ...

Answer 36

goods must be traded until MV(q*) = MC (q*); which is the optimal amount of trade

Question 37

TF: efficiency is related to the price

Answer 37

F: efficiency is related to a qty traded, not a price

Question 38

what is the distinction between valuation and value

Answer 38

- valuation: subjective, related to individual preferences and production possibilities - value: objective, resulting from a market process